Liquidation and Employees

The affect on employees of Company Liquidation is often redundancy. If jobs are lost then redundancy money should be received. However full entitlements are not always paid. Jobs may be saved if parts of the company can be sold.

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Will Employees be made redundant after Liquidation?

Liquidation is the process of closing a company. Once a Liquidator is appointed one of the first jobs they undertake is to make the employees redundant. Generally employees are not given any statutory notice. They will be dismissed immediately.

In the short term the liquidator may retain some employees in certain parts of the business. This could be where the business requires manpower to help wind down part of the company such as a manufacturing plant.

A Liquidator may want to keep certain parts of the business running as a going concern. By doing this they may feel it will help preserve value before they are sold.

Employees redundancy pay after Liquidation

After a company is liquidated any employees who lose their jobs are entitled to redundancy pay. However if the company is insolvent there may not be enough funds to pay full redundancy entitlements.

Where this is the case employees will be treated as preferential creditors. This means they will receive payment from any funds available after the liquidator has taken their fees. However the payment will be limited to £800. Any outstanding amounts in excess of this sum are treated as standard unsecured debts and may not be paid.

Generally speaking redundancy notices and payments will not be made as per the employee’s terms and conditions of employment. This means they could have the right to launch a claim for unfair dismissal against the company. However this is not usual as the company is insolvent and any such awards will remain unpaid.

Employees rights if part of the Company is sold

The task of the liquidator is to raise as much money as possible from the sale of the company’s assets. This may be best achieved through the sale of a department or sub section of the business as a whole.

In these circumstances any employees engaged in the part of the business that is sold must be transferred as part of sale. Under the Transfer of Undertakings (Protection of Employment) rules known as TUPE the transfer must include full employment rights.

If employees transfer to a third party company under TUPE rules this does not guarantee their jobs. The new owner of the business can still chose to make them redundant. However the redundancy process must be carried out in recognition of their full employment rights and terms of service. The costs of this must be borne by the purchasing business.

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